Polar Capital’s James Salter has implemented widespread changes in his $1.2 billion Japanese equity fund in order to capitalise on the favourable market for domestic names.
The Euro Stars AA-rated manager said that while he had started to turn his attention to less export-led names in July, over the past month he has increased this exposure in the Polar Capital Japan fund in order to better reflect the Japanese economic outlook.
According to his most recent market commentary, the changes to his fund had been spurred on by ‘uninspiring’ first quarter reporting which indicated a tough climate for manufacturing dependent on exports.
‘Turnover for the month was higher than normal and largely focused on reducing exposure to both cyclical and currency sensitive names and rotating into high quality defensive names with more domestic exposure,’ said Salter.
‘We sold Sumitomo Electric, Honda Motor and NGK Spark Plug and reinvested the proceeds into new holdings into Nippon Telegraph and Telephone and Nomura Research Institute.’
Nippon Telegraph and Telephone is now the second largest holding in the portfolio, accounting for 4.9% of its assets.
While the Japanese market will ultimately be buffeted by policy decisions in the US and Europe, there had been legislative changes regarding consumption tax and continued reconstruction efforts.
These changes made a domestic focused strategy more appealing than an external one, the Japanese equity specialist added.
'The strong yen will continue to have a stranglehold on exporters, and with increased monetary easing on the horizon, the yen appears to have no catalyst that could cause significant depreciation.’
In his outlook, Salter said value investors are facing a tough time in Japan at present, which has proven to be a significant headwind to his performance.
The Polar Capital Japan fund has lost 13.02% over the past three years. Over the same period, the Topix TR benchmark fell 17.51% and the Topix 1000 TR fell 18%.